4 Questions
What does straight-line depreciation assume?
The asset will lose an equal amount of value each year
How is the annual depreciation calculated in the straight-line depreciation method?
By subtracting the salvage value from the purchase price and dividing by the useful life
What is accelerated depreciation?
A method that allows a greater amount of depreciation in the early years of the property's useful life
Which method allows for more depreciation in the early years of an asset's life?
Accelerated depreciation
Study Notes
Straight-Line Depreciation
- Straight-line depreciation assumes that an asset's value decreases at a constant rate over its useful life.
- It assumes that the asset's value decreases uniformly over time.
Calculating Annual Depreciation
- In the straight-line depreciation method, the annual depreciation is calculated by dividing the asset's cost minus its residual value by its useful life.
Accelerated Depreciation
- Accelerated depreciation is a method of depreciation that assumes an asset's value decreases more quickly in the early years of its life.
- It is used to reflect the fact that some assets lose more value in the early years of their use.
Comparison of Depreciation Methods
- Accelerated depreciation allows for more depreciation in the early years of an asset's life compared to straight-line depreciation.
- It provides a more rapid write-off of an asset's cost in the early years, resulting in higher depreciation expenses in the early years.
Test your knowledge on straight-line depreciation and accelerated depreciation methods with this quiz. Learn about how these methods are used to calculate the depreciation of real property and understand the difference between them.
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